HL Deb 02 March 1999 vol 597 cc1621-32

7.43 p.m.

Lord Sainsbury of Turville rose to move, That the draft regulations laid before the House on 16th February be approved [10th Report from the Joint Committee].

My Lords, I am proud to come to this House today to present these draft regulations on the national minimum wage. For the convenience of Members I shall speak about both sets of regulations together.

This Government were elected on the promise that they would introduce a national minimum wage. We are now approaching the end of a long road which has brought us to the brink of delivering that promise.

Your Lordships have, of course, already contributed to this process. There were useful and interesting debates on various issues when the National Minimum Wage Bill was being considered last year. I hope that the debate this evening will be equally productive.

The Bill provided the framework of powers to establish a national minimum wage. The draft regulations which are now before the House use some of those powers to put the detailed technical arrangements in place. I shall explain what they do in a little while.

The Government have placed a premium on consultation and transparency throughout the process of bringing forward the minimum wage. We set up the Low Pay Commission which did a UK-wide consultation, receiving some 600 responses from all sectors and sides of industry. We placed its report before this House. We carried out a further consultation on the draft regulations and received some 300 responses. A report on its outcome has been placed in the Library of the House. We have also laid before the House a report on areas where the regulations depart from, or build on, the original Low Pay Commission recommendations.

I believe that this has been a massive and continuing effort with input from all sides: employers, workers, trade associations, unions, academics and Government. My noble friend Lord Haskins has welcomed the way in which my department has carried out this process.

As a result of the consultation, we have adjusted the regulations in a number of ways. These reduce unnecessary burdens on business, but without compromising protection for workers. First, we have decided not to proceed with a requirement for employers to provide a statement of the minimum wage on every payslip. We believe it is preferable to wait and see whether that should become necessary in the light of experience. I believe in any case that employers will find it to be in their own interests to ensure that their staff know about the minimum wage in order to avoid confusion and unnecessary disputes. My department is including, in the guidance that will be available, a model poster which I hope employers will want to display at the workplace. We cannot require employers to do that but it seems a sensible thing for good employers to do.

We have always regarded it as important to ensure that workers are aware of their rights, and employers of their obligations. We fully recognise that the Government have a role in this process as well. That is why the National Minimum Wage Act requires the Secretary of State to publicise the minimum wage. That is why we are spending around £5 million to ensure that people know what the national minimum wage is all about.

Secondly, we have decided not to require employers to keep specific records, but that they should be required to keep sufficient records instead. In other words, it will be left to the employer to judge what counts as sufficient in the first instance. We considered this issue very carefully because some businesses have told us that they would welcome knowing precisely what records should be kept. As a result, the guidance will contain advice on the kind of records that might be regarded as sufficient.

I believe that is a sensible starting-point. It should not reduce protection for workers, because they will still have a right of access to the records if they believe they are not receiving the minimum wage. In the event of a dispute, it will still be for the employer to prove that he has paid the minimum wage, rather than for the worker to prove that he has not received it; and it will still be a criminal offence not to keep records or to keep or produce false records.

We have also included special rules for workers who receive an annual salary in regular payments but who work irregular hours at different times of the year: for example, workers who work only during the school term but who are paid a regular amount throughout the year. During the consultation, concerns were expressed by representatives of employers and workers that the original draft regulations would require them to restructure their work and pay arrangements, even though the workers in question received the minimum wage for the time they were actually working. The effect of these rules is to treat annual working hours as if they were evened out across the year, reflecting the evening out of pay received. As a result, there should not be any need to restructure existing arrangements.

I hope that I have shown that the Government have taken pains to listen to responses, and have adjusted the regulations where appropriate but without reducing protection for workers or affecting the integrity of the minimum wage. As a result I am confident that the regulations will achieve their main aim; that is, the elimination of unfairly low pay, but with minimum knock-on effects or disruption to existing arrangements. The cost, as estimated in the Regulatory Impact Assessment, is confined purely to the impact on the paybill at around 0.6 per cent. of the total UK paybill.

I said that I would come back to the coverage of the regulations themselves. In my view the regulations do the minimum necessary to enable a minimum wage system to operate effectively. Without going into all the details, I shall pick out the main areas which they cover.

They set the rate of the minimum wage: £3.60 for those aged 22 and over; £3 for those aged from 18 to 21; and £3.20 for those aged 22 and over who are undertaking accredited training in the first six months of a new job. In this respect, the regulations also define what counts as "accredited training".

The regulations define what counts as pay—broadly in line with what the Low Pay Commission recommended. It is absolutely essentially to do that for certainty and to ensure that the rate amounts to the same thing for every worker and employer. The starting point is gross pay including, for example, incentive payments or bonuses as well as tips paid through the payroll. Accommodation can be counted, up to a maximum of £19.95 per week. But other elements are excluded; for example, overtime and shift premia, allowances that are not consolidated into basic pay, the provision of tools, a uniform or other equipment needed for doing the job.

It is equally essential to define what hours count as time when the minimum wage is payable. Again, the regulations keep broadly to what the Low Pay Commission recommended. In general, the times when a worker is at work and required to be at work will count, as well as travelling or training during working hours. There are also special arrangements for calculating the hours of pieceworkers and workers who have specified tasks but no set hours in which to do them.

It is also essential to show how to calculate a worker's hourly rate of pay, so as to check whether he or she is receiving the appropriate rate of the national minimum wage. The basic principle of the regulations is straightforward: the amount of pay that counts towards minimum wage pay is divided by the number of hours for which the minimum wage is payable.

I hope that that has given a flavour of what the regulations cover. The guidance will provide a comprehensive introduction to the rules, with many worked examples to assist understanding.

The introduction of a national minimum wage represents a significant step in tackling poverty in this country. At the same time we have sought to make certain that small businesses in particular do not have to take on any unnecessary administrative burdens. These regulations represent a sensible and reasonable starting point. But it will also be important to ensure that we keep a close watch on how things develop in practice, so that we are in a position to respond as necessary.

As I have already indicated, the Low Pay Commission has been given a role in monitoring the introduction of the minimum wage. I am confident that it will carry out this task as expertly as it conducted its first investigation and I look forward to receiving feedback. We shall also be getting more continuous feedback from the Inland Revenue, who have been appointed to enforce the minimum wage. In addition, we shall keep an eye on cases that come forward to the courts and the tribunals. By keeping all these avenues open, I am confident that when the time comes to make any adjustments to the regulations in the light of experience, we shall he able to do so in a reasonable way.

I hope that I have been able to explain what the regulations are, what they do and why, and to show that they reflect the outcome of a very thorough process to which the Government responded in a flexible and realistic way. I commend the regulations to the House.

Moved, That the draft regulations laid before the House on 16th February be approved [10th Report from the Joint Committee].—(Lord Sainsbury of Turville.)

Baroness Miller of Hendon

My Lords, I know the Minister will not be surprised when I say that the Opposition did not welcome this Act and did not believe it to be a good one. However, we believe that any proposal that ameliorates the problems that might arise with the National Minimum Wage Act is to be welcomed.

During the passage of the Bill through both Houses we warned the Government that it would have adverse effects on employment prospects of some vulnerable categories of employees. Though the noble Lord spoke to both orders together—I will continue to deal with them together—my comments now refer specifically to the amendment regulations.

To adapt an aphorism of the late Harold Wilson as he then was, one person's minimum wage is another person's job seeker's allowance. This is not the first U-turn that the Government have had to make over the operation of an Act which has not yet even come into force. On 8th February, in response to a Question from me, the noble Lord, Lord Williams of Mostyn, defended the application of the national minimum wage to au pairs only to find himself later cut off at the knees by the Secretary of State of the DTI who announced that it did not apply to them, which is what I had argued.

I mentioned this matter to the Minister outside. This morning two pieces of paper were faxed to me. One was an extract from Stephen Byers' report on regulations supplementary to the national minimum wage dated 16th February. It contained a paragraph which said that au pairs are excluded from the national minimum wage regulations. At the same time, or shortly afterwards, I was faxed something from one of the activity centres (to which I shall turn later) which appears to be preliminary guidance on the national minimum wage from the Department of Trade and Industry. The activity centre is not sure whether it received it on 23rd or 24th February, but it was certainly either last Tuesday or Wednesday. It stated that all workers, including part-time workers, pieceworkers, home workers, agency workers, domestic workers including au pairs must receive at least the national minimum wage.

I understand that a problem arose in that the Home Office did not anticipate what the DTI would announce a week later. Those things happen. But it is extraordinary that, once the Secretary of State at the DTI had made a statement on it, a leaflet on guidance was dispatched by officials of the DTI more than a week later saying that au pairs are included in the national minimum wage.

I am particularly glad to see that the Government are going to take powers to exempt those over the age of 26 in the categories (b) and (c) referred to in the regulations. Those are persons who participate in a scheme under which shelter is given in return for work and those participating in a scheme designed to provide training and work experience.

In the debate on one of my amendments I drew attention to the problem of those working at holiday summer schools, what are usually called "activity centres". I warned that the application of a national minimum wage to their staff, who were actually engaged in gaining work experience towards national vocational qualifications, would not only put the activity centres out of business but would also have a devastating effect on local communities who depended upon them, as well as depriving up to 200,000 children every year from a much-needed facility provided by these charities.

Unfortunately the noble Lord, Lord Haskel, who dealt with the amendment at that time, was unable to offer me any comfort except to refer to Section 44 of the Act, which I do not believe to be applicable. However the provisions go some way towards meeting the needs of the activity centres. I hope that the Secretary of State will exercise the powers he had taken in that regulation in their favour as soon as possible. I say, "go some way" because it would only be applicable if they were over 26; not in the gap between 18 and 26 when people might be working in those centres or studying there.

It is also a matter of some considerable disappointment, especially to those in the engineering industry, that the Government, when taking these second thoughts, have still not exempted apprentices. That was a recommendation of the Low Pay Commission and I hope that even at this stage the Secretary of State will consider that.

There is also a change in the proposed record-keeping requirements, which I will mention later and which the Minister has just discussed. I am not against politicians of whatever party making U-turns whenever they realise that they have got something wrong or have discovered that the electors who sent them to the other place do not agree with them. I am certainly not criticising the Government for their change of mind in respect of people over 26. On the contrary, I congratulate the Government and welcome their decision.

The main regulations, which we awaited with bated breath, define the value of the elements that make up the national minimum wage—cash payments, residential accommodation, food and other benefits in kind. In Committee, I introduced an amendment that defined in the simplest possible terms wages, benefits and anything so defined by the Inland Revenue for the purpose of income tax. I hope that your Lordships will excuse me for quoting myself. I said: The plain and simple effect of the main amendment … is to define 'remuneration'. It is defined as being anything which the Inland Revenue would treat as taxable. In other words, if it is subject to income tax then it is income. It is as simple as that". It still is. I argued that the Inland Revenue, with its long experience of defining wages and dealing with attempts at evasion was the best possible interpreter—especially with the impending amalgamation of the Benefits Agency. I asked—with some prescience, if I may say so—whether the regulations would be drafted by the Inland Revenue or by dedicated amateurs on the subject in the DTI".—[Official Report, 11/6/98; col. 1255.] In a few moments, your Lordships will be able to form your own opinions. In replying to that helpful and constructive amendment the noble Lord, Lord Clinton-Davis, said—and mark this closely: Employers and employees will want to know precisely what does and does not count as payments for determining compliance with the minimum wage".—[Official Report, 11/6/98; col. 1257.] In debates on other topics, the Minister and the noble and learned Lord, Lord Falconer of Thoroton, stressed the importance of employers and employees alike knowing exactly what was payable.

Paragraph 36(1)(a) on page 33 defines the amount to be taken into account where living accommodation is provided. The length of the regulations speak for themselves when compared with my nine-word definition: whichever is the lesser of the following— (a) the amount resulting from multiplying the hours of work done in the pay reference period (determined in accordance with Regulations 20 to 29) by 50p, and reducing that product by the proportion which the number of days (if any) in the pay reference period for which living accommodation was not provided bears to the total number of days in the pay reference period; or"— I shall not continue. When the Minister was discussing that regulation, it sounded simple but not when an employer or an employee has to examine it. If the object of the regulations is to enable employees and employers alike to understand what their respective rights and obligations are, perhaps the Minister will tell us how the owner of a late-night chippy who allows staff who have missed the last bus home to sleep on a camp bed in the stock room can work out the value of the accommodation.

I do not want to rub salt into the wounds, but what about Regulation 37(2)? It states that: For the purposes of Regulation 31(1)(i), the amount of the deduction the employer is entitled to make or payment he is entitled to receive in respect of the provision of living accommodation shall be adjusted by multiplying that amount by the number of hours of time work actually worked by the worker in the pay reference period (as determined in accordance with Regulation 20) and dividing the figure so obtained by the total number of hours of time work the worker would have worked in the pay reference period (including the hours of time work actually worked) but for his absence. The words "work worked" and "worker" appear eight times in one gigantic sentence of 101 words, including a reference to theoretical hours that a worker would have worked but for his absence from work.

To describe those regulations as a dog's breakfast is to risk running foul of the RSPCA. The Minister said that guides are being produced. I ask that those produced by the DTI are written in simple language capable of being understood by unsophisticated employers and employees, and that they will be published as soon as possible.

Part V of the regulations refers to the records that the employer is required to keep. Regulation 38(2) says that the records that an employer shall be required to keep shall be in the form a single document. Let me applaud that uncharacteristic brevity and simplicity.

I remind your Lordships that in Committee, I argued for an amendment requiring the records to be kept in a quote "reasonable" form and that PAYE records should he regarded as adequate records, to avoid duplication.

The noble and learned Lord, Lord Falconer, rejected my amendments as being unduly prescriptive, but offered to consider closely and sympathetically the relationship between the PAYE and national insurance records and those required for the purposes of the 1998 Act. I am glad that after the consultation process, the Government conceded that I was correct and that two sets of records on two separate bits of paper are not required. I am also delighted that the Government have abandoned the idea of the massive written statement that in their original consultation document an employer would have had to prepare weekly.

The Government professed the desire that employees would be able easily to see that they were getting their entitlement to the national minimum wage. I doubt that they will be able to do so simply by reading the regulations. The main beneficiaries from the regulations are likely to be the lawyers, but then they work for much more than £3.60 per hour. This is the Government's Bill. The Government are responsible for the regulations that are supposed to make it work. We shall not oppose them.

Lord Razzall

My Lords, I begin with a slight admonition of the noble Baroness, Lady Miller of Hendon. In the debate on the Bill, I disagreed with virtually everything she said, but she is someone with whom I have had the best of relations. It is not true that the Opposition opposed the Bill. One opposition party did so, and that was the Conservative Opposition. There is more than one opposition party in this House. One might say that there are three opposition parties, if one takes the two wings of the Conservative Party—but that is for another occasion.

It should be made entirely clear that the Liberal Democrats have been four-square with the Government on the necessity of introducing the minimum wage legislation. We have supported them throughout. I trust that the Minister will take my remarks in that context. Unlike the noble Baroness, we come from a position of overall support for the legislation's aims and objectives.

We entirely support the position that the Government adopted after consultation with regard to record-keeping. We were concerned, like many others in the House and the business community, that a draconian structure would be imposed—particularly on small employers. We much welcome the approach indicated by the Minister and set out in the Bill. We hope that the same commonsense approach will be adopted by the Government when listening to the concerns of the business community on other regulations as the legislation moves forward initially in coming years.

I want to put down markers for three areas of some concern. Although the Minister was not involved directly in the legislation, he will be aware—together with the noble Lord, Lord Simon of Highbury—that one of our concerns is to advocate permanent status for the Low Pay Commission. Although some progress is reflected in the regulations, we would press the Government to go further in entrenching the commission as a permanent body to monitor the regulations' effects on the general business community, young people and regional variation—on which we have bored for Britain.

Our second concern goes less to the form of the regulations and more to the timing. The regulations are intended to come into effect on 1st April 1999. That is a short time for regulations of such complexity affecting all employers to be introduced. Indeed, both in this House and in another place a number of people have expressed concern with regard to the working time regulations. Some felt that these were introduced on a very fast time track without necessarily allowing an appropriate period for the business community to take them on board, accommodate them and implement the results. We have some worries that the timetable will impose pressures on business. In future, when new regulations are to be brought in or finalised, we ask the Government to undertake to ensure that there is perhaps a longer lead time into the period than will actually happen between early March and 1st April when the regulations come into effect.

A further point flowing from that is that, as the noble Baroness, Lady Miller, indicated—indeed, it was touched upon by the Minister—these are complicated regulations; indeed, by definition, they must be complicated. Presumably the key document for employers and employees will be not so much the regulations, which will provide the framework within which rights are given and obligations undertaken, but the explanatory memoranda that are sent out and the information that the department gives to firms, companies and staff regarding the implementation of these regulations. Such explanatory memoranda should be written in as easy a manner to understand as possible. They should also be produced and disseminated, in the light of the very tight timetable, as soon as the regulations have been approved by Parliament. I would welcome some indication from the Minister that that point has been taken on board; that the process is under way; and that employers can expect to receive clear instructions on how to implement these regulations as soon as they are in place. But overall, as I said at the beginning, we support the Act and clearly, therefore, we support the regulations that are being brought in to implement it.

The Lord Bishop of Bristol

My Lords, in addressing your Lordships' House I want to make it quite clear that the Church is not taking issue with the principle of the minimum wage or of the legislation to establish and regulate it. Indeed, many of us have fought for this for a long time and we believe it to be right. The Church is not seeking any general exclusion from the provisions of this Act. However, the Church does have concerns about the possible impact of the legislation on religious communities. About 200 community houses have been identified as being affected by the legislation and some 20 communities have actually been actively lobbying on behalf of the rest. If I may say so, it is estimated that each community is involved with about 500 people a year at the lower level; indeed, in the L'Arche Communities, the number is something like 5,000 people a year. Those are considerable numbers of people who are being served.

Perhaps I may give the House just one example, which I believe will help noble Lords understand the exact nature of the problems. I should like to take the L'Arche organisation which describes itself as, Building communities with people who have learning difficulties". The regulations do not, apparently, recognise the particular characteristics of "intentional" communities like those run by L'Arche. For example, the L'Arche organisation sees itself as running communities where people join freely in a spirit of service and receive in return modest payment and accommodation. L'Arche's pay policy is that every community member receives payment on the same basis, according to need rather than reward—an idealism which, I suspect, many people wish they were able to follow. This is an important principle that L'Arche has held for the past 25 years in its houses here in the United Kingdom, and one it wishes to retain.

The major problem with the new National Minimum Wage Regulations is that they do not allow L'Arche to take any account of the value of free subsistence and accommodation that its live-in assistants receive over and above the figure of £19.95 per week, as set out in the regulations and to which reference has already been made. That is clearly unrealistic, given the fact that such accommodation actually costs more in the region of £100 a week. If L'Arche were allowed to take account of the full value of the accommodation and living costs at the same level paid to live-out assistants in its workshops, the wage levels of live-in assistants would exceed the minimum wage figure given in the regulations. So it is not trying to find a way to make things work on an easier basis; it is the way in which costs are actually worked out.

However, if the people we are talking about here were demoted to the status of volunteer they would fall outside the regulations; but would be denied any additional payment over and above basic subsistence and accommodation. Their long-term security would be totally the responsibility of the state. L'Arche believes that it is thus being penalised for treating people well. So surely, if no concessions are made, L'Arche believes that it will he faced with an increased wage bill of about £500,000 a year. As it is dependent on local authority funding that is already fixed, it could only continue to operate by making assistants redundant or, in extremis, returning people with learning disabilities to the care of their local authority, with all the costs implicit in that action.

Surely the latter is not the intention of the legislation, or of the Government in introducing it. I was, therefore, delighted to hear the Minister say that officials are even now preparing guidance on the interpretation and application of minimum wage regulations. But as they are now to come into being on 1st April of this year, noble Lords can understand that 200 community houses look to this month with considerable concern. Representatives of those communities and other Church bodies look forward to the opportunity to discuss how these voluntary workers are to be considered under the legislation, and how they are to be treated. Such religious communities do very special and valuable work; indeed, it is often work that no one else is willing to undertake. Surely it is in no one's interest that their service should thus be jeopardised.

Lord Sainsbury of Turville

My Lords, we have had a useful debate which has focused on a number of key aspects of this important measure. I should like to deal with the main points which have arisen. We estimate that there are 2 million workers who will benefit from these regulations. Employers, too, have welcomed the regulations as laid. The Confederation of British Industry has said that the Government have made a number of sensible changes which should help keep down the administrative burden.

I should like, first, to deal with the question of delay and the concern that has been raised that there has been too little time between laying the regulations and their entry into force. On the other hand, others—and we will come to this later—may see the regulations as being unduly complicated and difficult to understand. It is obviously important to ensure that business and workers are able to adjust as smoothly as possible to the new legislation. I can assure noble Lords that the Government have done all they can—and will continue to do so—to ease the transition.

In the first place, the Government have conducted a very thorough consultation on the regulations. A large number of representations were received raising important issues which required careful consideration. I believe that it was right for the Government to take the time to ensure that the regulations properly reflected the outcome of the consultations. However, I do not believe that it would have been right to put back the date of the implementation from I st April. That would have gone against the recommendation of the Low Pay Commission and would have denied low paid workers the benefit of the minimum wage for a longer time: they have waited long enough.

I turn now to the question of complexity. It is always easy to take a piece of legislation and make it sound ridiculous by concentrating on particular aspects of it. These regulations are inevitably complex in some places. This is because they need to cover the great variety of working and pay arrangements throughout the country. For example, they must cater for piece workers at home and in the factory, people who work on commission, workers who are engaged in unseasonal employment and workers who do long or unusual hours as well as their employers. That is where the complexity comes in—because life and work are indeed complex. In this respect, these regulations are no different from other areas of employment law which must cover the exceptional as well as the standard cases.

I can, however, assure the House that for the great majority of businesses and workers who operate on the basis of a nine to five day with regular pay, the regulations represent a straightforward approach which is in line with the definition of pay and working hours that was recommended by the Low Pay Commission in its report published last June.

In addition, the Government are committed to ensuring that employers are aware of their obligations and that workers are aware of their rights under the minimum wage. As I said at the start of the debate, we have decided to spend some £5 million on telling people about the national minimum wage in the run-up to 1st April and after.

There is already a helpline which sends out preliminary guidance and answers enquiries. My department is already issuing preliminary guidance based on the overall scope and effect of the National Minimum Wage Act. When, subject to the approval of this House, the regulations are passed, my department will he releasing detailed guidance as well as shorter leaflets designed for employers and for workers. We asked businesses what they wanted to see in such guidance and we have aimed to produce it. In particular, businesses have told us that they wanted clear and comprehensive guidance with worked examples. I believe that the guidance we have produced, and the back-up enquiry lines, will be helpful to both small and large businesses in adjusting to the minimum wage.

I shall now deal with one or two other specific points raised in the debate. There was the question of au pairs. I think we have arrived at a sensible position on this in which au pairs will be excluded, but only to the extent that they are treated as part of a family, particularly as regards the provision of accommodation and meals and the sharing of tasks and leisure activity.

The guidance note, to which the noble Baroness referred, was specifically listed as preliminary guidance. We have instructed the distribution company not to give out any more copies until the definitive guidance is available, and the definitive guidance will make clear what we have done in relation to au pairs and the extent to which they are exempted.

I turn to the question of wages: what wages should be counted as income. The situation here is simple. It is different from the point of view that it is specifically defined in the regulations because we do not want all the possible benefits other than the specific case of accommodation to be counted against the minimum wage and therefore lead to the dilution of the basic principle. That is why we have only set on the accommodation offset and we have fixed that at a specific figure of a maximum of £19.95.

The question was also raised of charities and intentional (religious) communities. The position of charities and religious groups is one to which we have given a great deal of thought. We have concluded that there is no way of allowing workers to opt for less than the national minimum wage without giving less scrupulous employers the opportunity to put pressure on vulnerable workers to sign away their rights. DTI officials are in contact with many of these groups and will be working with them to produce special guidance for charities adjusting to the National Minimum Wage. Our overall approach has been endorsed by the National Council for Voluntary Organisations, community service volunteers and major charities. If you are a genuine volunteer there is no reason for you to be caught by the minimum wage in the first place. But if you are a low paid worker, you will be caught by the minimum wage. There are in this case particular issues which relate to the interaction between intentional communities and the question of accommodation, and we will need to work through that with the DTI officials.

The question of apprentices was raised. I would only say here that there is a complicated balance to be made between incentives to employers and incentives to employees. I believe that employers who believe in the value of training will continue to do this even in circumstances where, after the first year, they have to pay the minimum wage.

In approving these regulations we have been taking part in a historic process. The introduction of a national minimum wage into a flexible labour market—the first time since the last war that this has been attempted—will help lift 2 million people out of poverty and reliance on benefit and I hope will prove also a spur to improved business performance. I beg to move.

On Question, Motion agreed to.